Competition between institutions for high-quality Australian real estate will increase in coming years as more local superannuation funds and overseas investors invest in direct property, says the chair of Australia’s biggest super fund.

AustralianSuper, with 1.8 million members and $42 billion in funds under management, has $4.2 billion allocated to direct property and expects to invest an additional $4 billion to $5 billion in property assets during the next four to five years.

“One of the biggest challenges we have is the ability to source suitable [property] investments in the Australian market. We expect the demand for good quality institutional property in Australia to increase,” AustralianSuper chair Elana Rubin told delegates at The Australian Financial Review Commercial Property Conference yesterday.

International institutions such as Canadian and Singaporean sovereign wealth funds are already buying assets in Australia.

According to Jones Lang LaSalle research presented at the conference, almost 30 per cent of buyers in commercial property transactions in 2011 were from overseas.

AustralianSuper has been increasing its exposure to direct property investments, with a shift towards core real estate property and away from opportunistic investment to manage risks.

By 2016, 90 per cent of its property portfolio would be invested directly in core real estate, Ms Rubin said.

The focus would be on property where a substantial part of the return would be underwritten by secure and sustainable income.

There would be a bias towards retail property such as regional shopping centres, followed by premium, A-grade offices in CBD locations, with a small weighting to industrial property, she said.

The remaining 10 per cent of its property portfolio would be invested in alternative sectors where the fund aimed to achieve higher investment returns.

These included agriculture and farm land, residential, retirement living and student accommodation.

The relative scarcity of high quality assets in Australia, along with competition from other investors, would force the fund to look offshore, Ms Rubin said.

Only about 3 per cent of the property portfolio was invested in overseas assets, but that could grow to 20 per cent over the next five years.

Ms Rubin acknowledged that there were risks in moving offshore. In the past some of the vehicles for investing in global property lacked transparency and were poorly aligned with the needs of investors.

“We are determined not to invest in vehicles that demonstrate those characteristics,” Ms Rubin said.

The fund would take a much more active approach to managing its property portfolio and would favour investments that were liquid and gave it control.